Price Goes Down, Price Goes Up

By

Two years after the University of the South announced a dramatic 10 percent price cut, charges there are back up to nearly what they had been.

The Tennessee liberal arts college, also known as Sewanee, was the first of several institutions to announce gasp-worthy cuts to their sticker prices. The cut generated big news for the small college.

In 2011, Sewanee officials cut total price – that’s tuition, fees and room and board -- from $46,100 to $41,500. But that figure has edged back up, and now stands at $45,970 for this year’s first-year students.

Sewanee Vice Chancellor John McCardell said Sewanee hasn't reversed course. When the cuts were announced, he said higher education was "on the verge of pricing itself beyond the reach of more and more families."

So, what happened? Yes, the price has gone up, he said this week. But it’s still lower than it was before the university announced the cuts. The price is also lower than the prices advertised by Sewanee’s peers.

The university also continues to play with its pricing model in an effort to make families more comfortable about the cost of college. It now promises to place a four-year lock on prices for incoming students so they and their parents know what they will need to pay or borrow to finish college. The lock means Sewanee guarantees the price students pay their first year is the same price they pay their fourth year. A number of other institutions do this, including George Washington University, the University of Phoenix and Indiana University.

“It’s still lower and, in our peer competitive group, it’s probably the lowest -- and you multiply ours by four and that’s what families pay,” McCardell said.

Meanwhile, the university's enrollment, which was declining slightly before the 2011 cuts, is now way up and the university has built new dorms. This year’s fall freshman class is 488 students, compared to 401 the year before the cuts were announced. The percentage of freshmen returning as sophomores is higher, too.

Besides that, entering classes are also more diverse and have more students eligible for federal Pell Grants.

“The number of applications shot up dramatically,” McCardell said. “The yield has clearly been remarkably improved and we’re really quite persuaded this has worked very well for us.”

Sewanee is part of a wave of liberal arts colleges that are trying to adjust their pricing models. Ashland University in Ohio, Converse College in South Carolina, the University of Charleston in West Virginia and Concordia University-St. Paul have all announced cuts in recent years.

The question is whether these price cuts attract new students and can provide adequate revenue in the long run. Evidence has been mixed so far but some of the models are so new that only time will tell. Skeptics of such dramatic cuts suggest the primary benefit is akin to a sugar rush -- media attention that lures in new students -- but that long-term benefits are few.

McCardell said Sewanee has actually been able to increase its net tuition revenue despite cutting the sticker price -- in part because the class sizes are larger so more students are paying, and in part because it has stopped having to provide as many discounts as it once did to students to get them to attend.

But he said the strategy may not be for everybody.

“I’ve always been very careful in talking to people like you to say that, ‘This has been a good decision for us,’ ” McCardell said.

Craig Goebel, a principal at the enrollment management consulting firm Art & Science Group, said Sewanee has sent “an interesting marketing message” by dropping its price and then raising it again.

Goebel has argued that dramatic price cuts can backfire and so work for only a select number of institutions. He said Sewanee now has a new message, though, which may color over the increase in price.

“I think the use of the tuition lock as a new message will hopefully overcome any dissonance in that (earlier) message," he said.

Goebel said in some cases the tuition guarantee or lock ends up meaning entering students are charged higher rates at the outset, which can have a negative effect on applications and enrollment for some institutions. Later, if students want to transfer, they have paid a premium for the early years and lose the benefit of the locked price in the later years.

“It is kind of a soft handcuff if you will for these families – it’s better off if they stay at that school because they have already paid the premium in those first years,” he said.

That’s not how McCardell sees it, though.

“We think that knowing what you’re going to pay for four years is preferable to not knowing what you’re going to be paying for four years, particularly when what you’re going to be paying for four years is less than any other competitive liberal arts college,” he said.